Obama’s Financial Reform
Ed Note: I include a comment on the Fed from Richard Russell Yesterday. The Article Pushing on a String is below the Wikipedia Piece
Question — Russell, you’ve been ranting against the Fed for years. Why so bitter?
Answer — My answer can be gleaned from a quote from the ancient House of Rothschild, at one time the wealthiest and most powerful family on earth. Here’s the quote that tells the story — “Let us control the money of a country, and we care not who makes the laws.” Amschel Rothschild, original head of the House of Rothschild.
Around 1913, a small group of bankers met secretly at Jekyll’s Island, where they developed a plan to establish a national bank that would take over the “task” of issuing the currency of the US. The plan was delivered to an abbreviated and sleepy Congress.
The piece below is from Wikipedia, and is so important that I’m including the whole of the piece below —
(Ed Note: This chart of Obama’s Financial Reform appeared in Dennis Gartman’s Letter this morning with this comment: “this legislation is simply one more example of
government becoming larger and more seriously intrusive in our lives.”
Jekyll Island and the Federal Reserve.
By John Pounders, Paradigm Publishing, Copyright 1996
My wife and I visited Jekyll Island, Georgia, in April, 1996. It immediately took on a fascination because I remembered that Jekyll is known as the birthplace of the Federal Reserve. In fact, the Clubhouse/hotel on the island has two conference rooms named for the “Federal Reserve.”
In 1886, a group of millionaires purchased Jekyll Island and converted it into a winter retreat and hunting ground, the USA’s most exclusive club. By 1900, the club’s roster represented 1/6th of the world’s wealth. Names like Astor, Vanderbilt, Morgan, Pulitzer and Gould filled the club’s register. Non- members, regardless of stature, were not allowed. Dignitaries like Winston Churchill and President McKinley were refused admission.
In 1908, the year after a national money panic purportedly created by J. P. Morgan, Congress established, in 1908, a National Monetary Authority. In 1910 another, more secretive, group was formed consisting of the chiefs of major corporations and banks in this country. The group left secretly by rail from Hoboken, New Jersey, and traveled anonymously to the hunting lodge on Jekyll Island.
The meeting was so secret that none referred to the other by his last name. Why the need for secrecy? Frank Vanderlip wrote later in the Saturday Evening Post, “…it would have been fatal to Senator Aldrich’s plan to have it known that he was calling on anybody from Wall Street to help him in preparing his bill…I do not feel it is any exaggeration to speak of our secret expedition to Jekyll Island as the occasion of the actual conception of what eventually became the Federal Reserve System.”
At Jekyll Island, the true draftsman for the Federal Reserve was Paul Warburg. The plan was simple. The new central bank could not be called a central bank because America did not want one, so it had to be given a deceptive name. Ostensibly, the bank was to be controlled by Congress, but a majority of its members were to be selected by the private banks that would own its stock.
To keep the public from thinking that the Federal Reserve would be controlled from New York, a system of twelve regional banks was designed. Given the concentration of money and credit in New York, the Federal Reserve Bank of New York controlled the system, making the regional concept initially nothing but a ruse.
The board and chairman were to be selected by the President, but in the words of Colonel Edward House, the board would serve such a term as to “put them out of the power of the President.” The power over the creation of money was to be taken from the people and placed in the hands of private bankers who could expand or contract credit as they felt best suited their needs.
Why the opposition to a central bank?
Americans at the time knew of the destruction to the economy the European central banks had caused to their respective countries and to countries who became their debtors. They saw the large- scale government deficit spending and debt creation that occurred in Europe.
Shortly after the United States gained its freedom, the Rothschilds attempted to saddle the country with a private central bank. This Bank of the United States was abolished by President Andrew Jackson with these words:
The bold effort the present bank has made to control the government, the distress it had wantonly produced…are but premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.
But European financial moguls didn’t rest until the New World was within their orbit. In 1902, Paul Warburg, a friend and associate of the Rothschilds and an expert on European central banking, came to this country as a partner in Kuhn, Loeb and Company. He married the daughter of Solomon Loeb, one of the founders of the firm. The head of Kuhn, Loeb was Jacob Schiff, whose gift of $20 million in gold to the struggling Russian communists in 1917 no doubt saved their revolution.
The Fed controls the banking system in the USA, not the Congress nor the people indirectly (as the Constitution dictates). The U.S. central bank strategy is a product of European banking interests.
Back to Jekyll, the Island
National and world events of the 1930s led ultimately to the Club’s closing in 1942. Jekyll Island was purchased by the state of Georgia in 1947. 33 of the Club member cottages and Clubhouse still stand. Many have been restored to their former grandeur and are open for tours.
Pushing on a String … Again?
In the wake of the latest batch of “double-dip” chatter, the market’s attention is shifting back to the Federal Reserve. Investors are asking a simple question:
“What, if anything, will the Fed do if the economy craps out again?”
Before I give my answer to that question, I’m inclined to ask a different one:
These guys have already done just about everything they can … pulled every trick out of their hats … and bailed out and backstopped virtually the entire financial system!
While all of that free money helped boost ASSET prices, it hasn’t done a heck of a lot for the “real” economy. Unemployment remains stubbornly high. Housing continues to slump. Investment is anemic and confidence is lacking.
In other words, the Fed is pushing on a string — and more pushing isn’t going to do a darn thing for those of us living in the real world! But since the market is focusing on the Fed again, let me address the question at hand …
Is QE2 Coming?
The latest economic data clearly suggests that my double-dip scenario is becoming much more likely.
Just this week, for instance, we learned that retail sales dropped 0.5 percent in June after falling 1.1 percent in May. That was worse than economists expected and the first back-to-back decline since early 2009.
What about housing?
Well, if you believe purchase mortgage applications are a good leading indicator of demand — and I do — then you should be worried. A Mortgage Bankers Association index that tracks loan activity just fell to 163.30. That’s the lowest level going all the way back to December 1996!
Finally, as Claus noted on Wednesday, a key leading index is pointing decisively lower. The inescapable conclusion? Despite the happy talk on Wall Street and the recent market rally, the economy appears to be rolling over.
The last time the economy fell into the drink, the Fed reacted by slashing interest rates to a range of 0 percent to 0.25 percent. The federal funds rate has remained there ever since, and there’s no indication it’ll rise anytime soon.
But the Fed did much more than lower the funds rate …
It also embarked on a policy of “Quantitative Easing” (QE). That’s a fancy way of saying it printed money out of thin air and bought more than a trillion dollars of securities: Mortgage-backed bonds, Fannie Mae and Freddie Mac debt, long-term Treasuries, and so forth.
The idea was to lower mortgage rates and bond yields, thereby spurring home purchases, refinances, and corporate investment.
Did it work?
Well, mortgage rates definitely tanked. At around 4.5 percent, in fact, 30-year fixed mortgages are the cheapest they’ve been in the last century! But as I noted above, housing activity is now plumbing depths we haven’t seen since Bill Clinton’s first term in office. Bond yields did drop initially, but not much. And they subsequently rose again.
Bottom line: I’d argue the Fed didn’t accomplish much. Even some Fed officials doubt the rampant money printing and QE policy worked all that well, according to The Wall Street Journal.
That hasn’t stopped some of the Keynesian acolytes from begging for even more free money from Helicopter Ben Bernanke though. Take New York Times columnist Paul Krugman …
He lambasted the “Feckless Fed” this week, begging it to do “all it can to stop it” — the “it” being deflation. Buy government bonds? Buy private bonds? Pledge to keep short-term rates low, essentially, forever? Krugman is all for it!
So far, the Fed itself appears split. The Journal this week puts Fed governor Kevin Warsh, Richmond Fed president Jeffrey Lacker, and Kansas City Fed president Thomas Hoenig in the “No more funny money” camp.
But Boston Fed president Eric Rosengren and New York Fed president Bill Dudley appear more open to the idea. Bernanke is reportedly somewhere in the middle, preferring to just wait, watch, and let the market sort itself out.
If So, Should We Care?
But again, my answer is that whether the Fed goes hog wild printing money or not, it won’t matter much to the real economy. It’ll probably boost gold prices. It’ll likely hammer the dollar. And it could temporarily boost stocks, even in the face of lousy fundamentals.
But all the kings horses, all the kings men, and even a further ballooning of the Fed’s balance sheet — currently around $2.3 trillion vs. $900 billion before the credit crisis burst onto the scene — won’t matter to most Americans.
Private companies aren’t firing workers and hoarding cash because interest rates are too high. They’re doing so because there’s too much factory and labor capacity.
Consumers aren’t cutting back on spending because loans are too expensive. They’re doing so because they just went on the wildest debt-fueled spending binge in U.S. history, and they’re trying to repair their balance sheets.
Look, we’ve had twin bubbles in stocks and housing over the past decade and a half. They both popped. The fallout will be with us for a long, long time.
I wouldn’t be surprised in the least if a long Japan-like period of economic stagnation lies ahead. In fact, I’d invest accordingly — by paring back stock positions into rallies, and using inverse ETFs and put options to target downside profits.
And when the Fed chatter reaches a fever pitch, I have some advice: Turn off the TV and go play with your kids or grandkids. It just doesn’t matter much in the grand scheme of things.
Until next time,
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